Question

The common stock of the Baros Corporation has a beta of 1.2. U.S. Treasury bonds currently yield 3.0%, and the expected market return is estimated to be 8.0%. What rate of return is required by investors from Baros Corporation stock

Answer 1

the rate of return is 9%

Step-by-step explanation:

The computation of the rate of return is shown below;

As we know that

As per capital asset pricing model

Rate of return = Risk free rate of return + beta × (market rate of return - risk free rate of return)

= 3% + 1.2 × (8% - 3%)

= 3% + 1.2 × 5%

= 9%

Hence, the rate of return is 9%